A discount may bring in more customers. But unless you understand your margins, it can also leave your business working harder for the same amount of money.
Discounts are among the easiest promotions to introduce.
A business can announce a 10% sale today and immediately give customers another reason to buy.
But one calculation is often overlooked.
How many additional sales will the business need to recover the contribution lost from that discount?
Let's do the math
Suppose you sell a product for ₱1,000.
Your variable cost per item, including the product and other costs that increase with each sale, is ₱700.
That leaves ₱300 per unit to contribute toward fixed expenses and profit.
Now offer a 10% discount.
Your selling price becomes ₱900, but your variable cost remains ₱700.
Your contribution per unit drops from ₱300 to ₱200.
Previously, selling 100 units generated ₱30,000 in contribution.
To generate that same ₱30,000 after the discount, you now need to sell 150 units.
That's 50% more sales volume just to maintain the same total contribution.
This example assumes unchanged unit costs, no additional transaction expenses, and no other changes to the business.
Does that mean discounts are bad?
Of course not.
Discounts can be useful for clearing aging inventory, attracting first-time customers, filling unused capacity, or encouraging purchases during slower periods.
Price is also a genuine consideration for buyers. PwC's 2025 Customer Experience Survey found that 69% of surveyed US consumers said comparing prices significantly influenced their decision to engage with a brand.
The problem begins when discounts are introduced without knowing what they need to accomplish.
Before offering one, consider three questions:
- What is the contribution margin before and after the discount?
- How much additional volume would make the promotion worthwhile?
- Are the customers acquired through the promotion likely to purchase again at a sustainable price?
If you operate a service business, the same principle applies. A discounted project still consumes staff hours and operating capacity.
Sometimes, adding value is more practical than reducing price. Improved service, convenient delivery, better support, or thoughtful product bundles can make an offer more attractive without automatically sacrificing the same percentage of revenue.
Pricing is a business decision with operational consequences.
A successful promotion should be measured by what it contributes to the business, not simply by how many orders it generates.